CN says TCI Fund Management claims are false


Canadian National Railway Co. has forcefully pushed back against a British-based investor seeking changes at the railway, saying Friday that TCI Fund Management Ltd. had made false and misleading claims and that it has a clear conflict of interest.

“We will not indulge unfounded and bad-faith arguments that serve the interests of one shareholder over others,” said CN chief executive Jean-Jacques Ruest in a statement.

He said that CN maintains an open and constructive dialogue with its shareholders, and is open to discussions about improvements, but that he wouldn’t serve the interests of CN’s competitors.

The comments come after TCI criticized CN’s management and strategy, and criticized the railway for its risky and failed bid for Kansas City Southern.

TCI asked in mid-September for a special meeting of CN shareholders for the purpose of “refreshing” the railway’s board and proposed Jim Vena, former chief operating officer at CN, as a potential replacement for Ruest.

CN said that TCI has failed to put out a credible or differentiated plan of its own, and that it has a conflict of interest as being the largest shareholder of CN’s main rival, Canadian Pacific Railway Ltd.

“TCI’s motives are highly suspect,” the railway said in the statement.

“(It) is trying to assert effective control over CN without presenting a credible plan to create superior or sustainable value.”

The Montreal-based railway said that TCI’s claims that it faced US$2 billion of losses from the KCS pursuit “have been proven blatantly false,” noting that it gained US$700 million in breakup fees.

“CN shareholders should question TCI’s motives of endorsing CN’s closest competitor to pursue the transaction, while ignoring the equally compelling rationale of CN’s interest of pursuing the same transaction,” Canada’s largest railway said.

“CN believes the critical difference is that CP has limited long-term growth opportunities without KCS, while CN’s future as a standalone business is bright.”

Concerns about measurement

CN raised concerns about how TCI has measured the railway’s financial performance.

It also pointed out that the board chair TCI is asking to step down had already announced in March that he would be doing so because he would be reaching his term limit.

TCI managing partner Chris Hohn said in September that the fund launched the proxy fight after CN Rail’s bid for KCS showed a “basic misunderstanding of the railroad industry.”

The often testy battle between Canada’s two largest railways for Kansas City Southern ensued behind the scenes for months before CP Rail and the U.S. railway announced a friendly offer in March.

KCS switched alliances a month later by declaring CN’s cash-and-stock bid valued at US$33.6 billion as superior.

However, the U.S. railway renewed its support for CP and its US$31 billion bid last month after the U.S. transportation regulator denied CN’s use of a voting trust for KCS, saying it would be bad for competition.